22
February 2024
VH
Global Sustainable Energy Opportunities plc
Net
Asset Value and Factsheet
Overview
GSEO is focused on enabling the
energy transition globally through its investments. Its objective
is to generate stable returns, principally in the form of income
distributions, by investing in a diversified portfolio of global
sustainable energy infrastructure assets, predominantly in
countries that are members of the EU, OECD, OECD Key Partner
countries or OECD Accession countries. The Company also aims to
create environmental and social impact, transforming lives and
communities without compromising on returns. The Company targets a
total unlevered NAV return of 10%, net of fees, and a progressive
annual dividend per share which, as at 31 December 2023 was
1.1x covered by the strong underlying cash generation from the
operating assets, which make up 58% of the current portfolio. As
construction assets achieve operational status in the course of the
next 12 months, the dividend coverage is set to strengthen. Today,
the Company's operational assets benefit from over 90% of
contracted and inflation-linked revenues, minimising power-price
risks.
Under GSEO's unique joint-venture
model, the asset programmes in Australia, Brazil, the UK and the
USA are implemented and operated by established local operating
partners with over 100 personnel managing the GSEO assets. The
local presence and deep expertise of the Company's operating
partners maximise asset returns and value creation for
shareholders.
Capital Allocation
The Investment Manager remains
focused on disciplined capital allocation to optimise and enhance
shareholder returns.
· The
Company increased its Q4 2023 dividend, revising it upwards from
the previously stated 2023 dividend target. In line with the
progressive dividend policy, the Company has committed to a 2.9%
increase in its dividend for 2024.
· The
Company announced a £10 million share buyback programme on 15
September 2023. As at 31 December 2023, the Company had bought back
a total of £5.4 million worth of its own shares, adding 0.41p to
the NAV per share. The Board continues to believe that the share
price materially undervalues the Company and that the buyback
represents an attractive investment as part of an active capital
allocation policy. In light of this persistent disconnect between
GSEO's portfolio value and the value inferred by its share price,
the Board has decided to increase the buyback by £10 million,
bringing the total share buyback programme to £20
million.
· The
Investment Manager regularly reviews the Company's cash position
and, in particular, any amounts allocated but not yet deployed to
ensure shareholder returns are maximised in the event that
reallocations can be made to new investment opportunities offering
potentially superior returns on a risk-adjusted basis.
Financial & Operational Highlights
Interim dividend
The Board of Directors of the Company
announced an interim dividend of 1.42p per share in respect to the
period from 1 October 2023 to 31 December 2023, an increase of 2.9%
vs. the prior quarter.
With the declaration of the interim
dividend, the total dividend for the 2023 financial year is 5.56p
per share, exceeding the dividend target of 5.52p.
The Company has committed to
quarterly dividends of at least 1.42p or 5.68p in total for the
2024 financial year, an increase of 2.9% from the previous year and
in line with its progressive dividend policy.
Income from the portfolio remained
robust during the quarter from the 58% of the portfolio that is
operational, with the dividend already 1.1x covered. As further
projects reach operational status, the dividend coverage is set to
strengthen. The Company's operational assets continue to benefit
from over 90% of contracted and inflation-linked
revenues.
Leverage
Total leverage of the Company is 1.9%
of NAV, which comprises asset-level leverage at its US asset. The
Company does not currently employ short-term leverage at the fund
level.
31 December 2023 Net Asset Value
(NAV)
The Company's NAV as at 31 December
2023 was 116.46p per share, compared to 105.72p per share as at 30
September 2023, a 10.2% increase. The movements in the NAV during
the quarter include:
|
Pence per
share
|
Net
Asset Value per share as at 30 September 2023
|
105.72
|
Dividend paid during the
quarter
|
(1.38)
|
Distributions from
investments
|
1.86
|
Fund expenses
|
(0.51)
|
Movement in fair value of
assets
|
11.50
|
Movement in foreign
exchange
|
(1.14)
|
Share buyback
|
0.41
|
Net
Asset Value per share as at 31 December 2023
|
116.46
|
Movement in Fair Value of Assets - Key
Drivers
· During
the quarter, discount rates reduced by 98bps on average across the
portfolio, mainly driven by lower risk-free rates as well as a drop
in both country risk premia and the renewable energy sector risk
premia:
- Following
a period of macroeconomic volatility from mid 2022, key indicators
began to stabilise in Q4 2023, resulting in a reduction in risk
free rates, with the 20-year US Treasury falling from 4.90% as at
30 September 2023 to 4.19% as at 31 December 2023, resulting in a
4.2p per share impact on the NAV.
- The
country risk premium for Brazil fell 105bps to 2.43%, which
resulted in a decrease in the discount rates used in the valuation
of the Brazilian assets, resulting in a 1.6p per share impact on
the NAV.
- Discount
rates for operational assets as at 31 December 2023 were 6.91% in
the US, 7.74% in Australia, 9.54% for the Brazilian hydro facility
and 9.67% for the Brazilian solar PV assets. The UK asset is in
construction and therefore currently held at cost.
· The
Brazilian hydro facility benefited from a renewal of federal tax
incentives for a further eight years, resulting in a 4p per share
impact on the NAV.
· Additional operational optimisation by the Investment Manager
and the operating partner in the US, Motus Energy, have led to
improved revenue expectation for the US terminal storage
assets.
· There
has been no upward revision in asset lives, and the asset
valuations continue to use 25 years for the Brazilian and
Australian solar PV assets, 30 years for the US terminal storage
assets and 25 years for the Brazilian hydro facility.
Portfolio update
· Brazilian solar PV assets:
-
Construction for three of the remaining six solar sites is
progressing well, and commissioning is expected in H1 2024.
Construction for the last three sites will commence upon completion
of the three sites currently under construction.
- The ten
operational sites continue to supply energy to creditworthy
commercial and industrial energy users and large multinational
corporations with operations in Brazil. The majority of the
programme's total production is contracted with a multinational
telecommunications company. The average length of these
contracts is 20 years, linked to local inflation.
· Brazilian hydro facility:
- The hydro
facility in Brazil continues to be a strong performer in the
portfolio, with EBITDA 14% above budget in the fourth quarter of
the year.
- During the
period, tax incentives were secured for a further 8
years.
- Revenues
for this asset are secured under long-term PPAs with local
utilities and linked to local inflation.
- As a
reminder, hydrological risk is mitigated by a consortium system
prevalent in Brazil where key hydro plants form part of a
nationwide pool that allocate total production to individual
plants.
· US
terminal storage assets:
- The US
terminal assets continued their strong performance since
acquisition in April 2021.
- EBITDA has
increased from $6m at acquisition to $15m as at 31 December 2023,
through implementation of a buy, expand and optimise
strategy.
· Australian solar PV with battery storage assets:
- Following the
completion of the construction of the co-located 2 hour 4.95MW
battery energy storage system ("BESS") in South Australia, the
solar and
storage hybrid system captured attractive power prices in the
intraday market. In November 2023, the average captured price for
BESS was over
A$200/MWh, which is 4 times higher
than the average captured prices for solar during the same
period.
- Post
period, the solar farm component of the three New South Wales sites
have completed commissioning and are operational. Installation
works for the BESS have commenced and the sites are expected to be
hybridised within the next 12 months.
- The
Australian wholesale power market is liberalised much like the UK,
and allows batteries to access peak pricing. In particular, when
combined with the requirement for system frequency response
services, BESS technology proves to be particularly attractive for
investors. Furthermore, the generation supply mix between coal, gas
and renewables in Australia is more constrained than the UK so
peaking events create more pronounced pricing dissonances, driving
further interest from BESS investors. Whilst average power prices
have decreased from the highs of 2022 as a result of intervention
by the grid operator, the reduction in battery module costs,
combined with the constrained energy mix make peak prices more
accessible to market participants.
· UK
flexible power with carbon capture and reuse (CCR)
asset:
- The
construction of the 10MW site is well advanced, with the Rolls
Royce reciprocating engines, Turboden High Temperature ORC
Turbines, and ASCO CO2 capture and purification units on site.
First power is expected in the next few weeks, and commissioning of
the integrated plant with CCR is expected to commence over the
summer.
- Following
the issues faced by the programme's incumbent EPC contractor in Q2
2023, the Company is in the final steps of hiring a new EPC
contractor to complete construction. The replacement needed to
complete the civil works at the project site resulted in a payment
of additional premia and led to an overall increase in CAPEX of
£16m for the project. Despite this increase, the Investment Manager
still expects returns to be in line with original expectations, due
to firmer expectations for additional revenue streams of the
project.
-
In the UK electricity market, ensuring the
delivery of dependable power amidst increasing penetration of
intermittent renewable energy is key to maintaining grid stability.
Such flexible sources of power are generally provided by unabated
gas or coal fired generators - which generate over periods longer
than several minutes - unlike batteries which are utilised for
periods of a few minutes. By utilising carbon capture technology on
the gas-fired project, the Company will be able to provide very
attractive flexible power to the grid, while capturing and
purifying the CO2 exhaust. The purified food grade CO2 is expected
to be sold in the industrial gases market, addressing its
structural shortage, while allowing the Company to build several
revenue streams, in contrast to other UK flexible power projects
involving battery storage or gas peakers.
Foreign exchange
During the quarter, GBP strengthened
versus USD by 4.36% and BRL by 0.61% but weakened against AUD by
1.43%. A net strengthening of GBP against the portfolio currencies
resulted in FX losses, which were more than offset by gains
elsewhere. The Company hedges the short-term distributions from
investments from local currency to GBP.
Sustainability Update
· A
total of 25,616 tonnes of greenhouse gas emissions were avoided in
the fourth quarter of 2023.
· A
total of 160,015 MWh of renewable energy was generated from the
portfolio over the same time period, equivalent to over 59,000
average UK homes powered annually.
· Almost
5,000 tonnes of sulfur were avoided in the last quarter,
attributable to the US asset.
Investment objective & strategy
summary
The Company's investment objective
is to generate stable returns, principally in the form of income
distributions, by investing in a diversified portfolio of global
sustainable energy infrastructure assets, predominantly in
countries that are members of the EU, OECD, OECD Key Partner
countries or OECD Accession countries. The Company continues to
support the global energy transition while offering its
shareholders both a progressive income stream and capital growth.
The Company targets a total unlevered NAV return of 10%, net of
costs and expenses, and a progressive annual dividend per share,
paid quarterly.
The factsheet will be available on
the Company's website.
www.vh-gseo.com
The Company's LEI is
213800RFHAOF372UU580.
For further information, please
contact:
Edelman Smithfield (PR
Adviser)
Ged
Brumby
+44 (0)7540 412 301
Hamza
Ali +44
(0)7976 308 914
Victory Hill Capital Partners
LLP (Investment Manager)
Navin
Chauhan info@victory-hill.com
Deutsche Numis (Corporate
Broker)
David
Benda
+44 (0)20 7260 1000
Matt Goss
Apex Fund and Corporate Services
(UK) Limited (Company Secretary)
ukfundscosec@apexgroup.com
About Victory Hill Capital
Partners LLP
Victory Hill Capital Partners
LLP ("Victory Hill") is authorised and regulated by
the Financial Conduct Authority (FRN
961570).
Victory Hill is based
in London and was founded in May 2020 by an
experienced team of energy financiers that have spun-out of a large
established global project finance banking group. The team has
participated in more than $200bn in transaction values
across 91 conventional and renewable energy-related transactions in
over 30 jurisdictions worldwide. Victory Hill is the investment
manager of the Company.
The Victory Hill team deploys its
experience across different financial disciplines in order to
assess investments holistically from multiple points of view. The
firm pursues operational stability and well-designed corporate
governance to generate sustainable positive returns for investors.
It focuses on supporting and accelerating the energy transition and
the attainment of the UN Sustainable Development Goals.
Victory Hill is a signatory of the
United Nations Principles for Responsible Investing (UN PRI), the
United Nations Global Compact (UN GC), Net Zero Asset Managers
Initiative (NZAMI), a member of the Global Impact Investing Network
(GIIN) and is a formal supporter of the Financial Stability Board's
Task-Force on Climate-related Disclosures (TCFD).
END